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Journalism of Courage
Dalal Street on Friday finished with good gains after the government announced a populist interim Budget marked by higher rural sops as well as tax exemptions before the general elections. However, the markets retreated from their highs as investors raised concern over the impact of various sops on the fiscal deficit.
The BSE Sensex rose 212.74 points, or 0.59 per cent, to close at 36,469.43, while the broader NSE Nifty rose 62.70 points, or 0.58 per cent, to 10,893.65. Though the Sensex soared more than 500 points intra-day as Finance Minister Piyush Goyal tabled the Budget for 2019-20 in the Lok Sabha, the market pared the gains amid concerns over the impact of farm and tax sops on the fiscal deficit. The 10-year benchmark government bond yield rose to 7.611 per cent, a rise of 12.8 basis points during the says, while the rupee was down 17 pasise at 71.25 to the dollar.
“From the stock market point of view, this budget will be welcomed as it focuses on increasing the disposable income in the hands of a large section of the economy — middle-income group and farmers. The budget proposals are a positive for sectors related to consumption, which include FMCG, auto, consumer durables, banks and fertiliser and agri sectors,” said Jayant Manglik, President Religare Broking. Moreover, with several announcements pertaining specific to the real estate sector in the Budget, this sector will stand to be a beneficiary over the medium-to-long-term. Thus, sectors related to and dependent on real estate will also stand to gain and these include paints, cement and ceramics, he said.
V K Sharma, head PCG & Capital Markets, HDFC Securities, said the rupee and bonds fell on the budget announcement of higher borrowings. “The government made a big populist push in his final budget before the Lok Sabha elections, cutting taxes for middle-class voters and giving cash handouts to farmers. In the process, the government will widen its fiscal deficit targets for the current and next financial year to 3.4 percent of gross domestic product and borrow more.” Yield on benchmark 2028 debt rose 9 bps to 7.57 per cent after the government proposed to borrow Rs 7.1 lakh crore for the next fiscal year hen compared to Rs 5.7 lakh crore estimated this fiscal. The market will now focus on the RBI policy decision on February 7, he said.
Analysts said the tax sops will boost consumption but it will also push up borrowings and fiscal deficit.
The government has pegged fiscal deficit at 3.4 per cent for FY20, higher than market expectations.
“We expect the mood to remain a bit subdued and focus to shift to the RBI Monetary Policy Review on February 7 where we expect the RBI to maintain status quo on rates and shift stance from calibrated tightening to neutral. We remain cautious and have reduced duration in our debt funds in the run-up to the budget,” said Bekxy Kuriakose, Head – Fixed Income, Principal Mutual Fund.
Market experts said the interim Budget is an election budget by all means, aimed at making everybody happy. “The revenue projections need to be watched very carefully in order to see control on fiscal deficit. The budget is directly aiming at delivering gains to all major stakeholders in the election, the farmers, the middle class and the poor. At a time when the unemployment is reported to be at 45 year low and corporate sector investment is at a 14-year low there has been widespread expectations for direct investment boosters in the budget for creating more job opportunities. This is the only disappointment in the budget,” said CJ George, Managing Director at Geojit Financial Services. Auto and consumption stocks rallied as investors welcomed incentives for the agriculture sector and the middle class.
The BSE auto, consumer durables, FMCG and realty indices climbed up to 2.62 per cent during Friday’s session. Banking stocks remained subdued with Yes Bank, SBI, ICICI Bank and Axis Bank falling by up to 4.68 per cent.
